Investors added about $1 billion to U.S. municipal bond mutual funds in the week that ended Dec. 7, the most since March 2010, as 10-year benchmark yields fell to the lowest since September.
The funds have attracted about $3 billion since mid-October, according to Lipper US Fund Flows data. Yields on top-rated 10-year municipals fell to 2.005 Thursday, from a two-month high of about 2.58 percent on Oct. 13, according to Bloomberg Valuation data. Thursday’s benchmark tax-free yield was just above the 2.003 percent interest rate on Sept. 23, the lowest since the index began in January 2009.
Investors are adding cash to municipal funds to tap into the rally in the $3.7 trillion market and to boost assets they deem relatively safe before month-end, said Matt Fabian, managing director of Concord, Mass.-based Municipal Market Advisors, in a telephone interview.
“It’s probably partly the rally and partly just allocations into year-end, getting portfolios ready for year-end to show a larger allocation of fixed income,” Fabian said.
Net additions in the past couple of months are a reversal from earlier in the year. Investors pulled more than $30 billion out of the funds from November 2010 to June as lingering strains from the recession fueled speculation that municipal defaults would jump.
In contrast with the decline in 10-year yields, interest rates on top-rated tax-exempts maturing in 30 years increased in the past two months to 3.85 percent Thursday, according to Bloomberg data. A basis point is 0.01 percentage point.
The yield on the longer-maturity index was 185 basis points above that on the 10-year gauge yesterday, the widest gap since at least January 2001, when the Bloomberg Valuation data began.